A shot in the dark

An attempted assassination; an ailing leader; an author from a humble background chosen as the deputy to a candidate for one of the most powerful jobs in the world; a new record Dollar price for gold. Coincidence or causation? Probably more important than any of the attention-grabbing political stories in pushing gold higher were a few words from Christopher Waller, nominated by Donald Trump (when he was President) as a member of the board of governors of America's central bank, the Federal Reserve. Waller said on 17 July - when the gold price hit its latest record price - that "I do believe we are getting closer to the time when a cut in the policy rate" [the Fed-set interest rate] "is warranted". This very broad hint (echoed by other Fed officials) that the Fed is on the brink of cutting its policy rate of 5.25%-5.5% was just the signal that gold buyers have been awaiting for months. According to the Chicago Mercantile Exchange (CME) Fedwatch tool, a fairly objective predictor of US interest rates, based on 30-day Federal funds futures and options, more than half the bets are that the policy rate will be 4.5%-4.75% by the end of this year. The Fed 'pivot' (a move to start cutting interest rates) has been predicted/expected for more than a year.

The dark

Yet the reason for high interest rates - central banks trying to wrestle inflation into the dust - may be longer-lived than expected. Certainly that's the fear of the International Monetary Fund (IMF) which warned this week that interest rates may have to stick higher for longer thanks to high service sector inflation. The IMF now forecasts that inflation globally is unlikely to hit 2%/year until the end of 2025. In the UK headline inflation has now dropped to 2%/year - the Bank of England's target - but since the start of 2024 service sector inflation has only dropped 0.8% and remains 5.7%. In the US, where the target for inflation is also 2%, wholesale inflation in June unexpectedly rose to 2.6%, the highest level in 17 months. Service sector inflation is proving stubborn in the US too - it dropped just 0.2% from May to 5% in June (latest data). Central banks reacted too slowly when the recent inflation burst first appeared; once bitten, twice shy. They have learned to be cautious while stumbling around in the dark.

'America first'?

While many opinion polls register dissatisfaction at facing the choice of either President Biden or former President Trump in November, they also tend to give the latter a slight lead over the former, with a third candidate, Robert F. Kennedy junior, way behind. Time is running out for the Democrat Party to displace Biden, who despite the US economy's improvements is likely to be blamed for inflation and a decline in most people's quality of life. According to a Gallup poll in April this year, "Biden stands in a weaker position than any prior incumbent, and thus faces a taller task than they did in getting reelected."

Now that Donald Trump has selected J. D. Vance as his running mate, what might a second Trump term mean for the economy? And en passant, what might lie ahead for gold or other alternatives to fiat currencies? Vance and Trump both hold cryptocurrencies; Vance espouses

The Trump+Vance platform is 'America first' but that doesn't preclude uncertainty, contradictions, government-by-whim. Given that, a few items have been so emphasized by both that some assumptions seem worth making.

The US Dollar is likely to lose value in a bid to boost the country's exports; tariffs on imports, particularly goods imported from China, are likely to rise. It's possible that a chunk of the $35 trillion national debt might be repudiated and/or rescheduled - the yearly interest of around $1 trillion, soon to rise to $2 trillion, is not supportable. Deregulation has long been a Republican Party ideal. Promotion of fossil fuel production is likely. Anti-globalization will be high on the agenda. Trump is not in favor of high interest rates, but he does not want the Fed to start cutting before a new President is in office, no doubt hoping it will be he who can make a gift of lower rates to the country.

A Trump+Vance government will be determinedly isolationist, which will unsettle America's allies, and possibly hasten the demise of the US Dollar as the international reserve currency.

Very little is certain in politics. In the three months before the US election much can change. What is not in dispute is that gold's fortunes depend heavily on what happens in US politics. Lower interest rates, sooner or later, are a certainty, and gold will benefit. By how much depends on how much the advent of lower rates is already priced-in.

At Glint, we make every effort to demonstrate a balanced conversation between gold, crypto and fiat currencies when it comes to purchasing power and, while we strongly believe that gold is the fairest and most reliable currency on the planet, we need to point out that it isn’t 100% risk free. While we have seen a steady increase over time, the value of gold can fall, which means that its purchasing power can also decline.